ST:TNG - Fedeation observation station using cloaking technology?

I was reading some old questions about cloaking and that the Federation had agreed not to develop cloaking at the Treaty of Algeron.

However, in "Who watches the Watchers" the Federation is observing a pre-warp society using an observation station built into a mountain-top. At one point in the episode, the 'cloak' around the observation station fails and the observation station becomes visible to the natives -- who are angry that they've been under observation for so long.

Wait? Isn't that cloaking technology? Presumably the hand-waving technology is that the observation station was hidden by a holographic projection of rocks, but to me that still seems like a 'cloak'.

Was the Federation observation outpost in violation of the Treaty of Algeron -- or did it not apply to: 1) interactions with pre-warp societies (this makes no sense); 2) specifically detailed only particular types of cloak (holographic projections OK; metamaterials OK; tachyon bending, not-OK); 3) military applications of cloak (which would seem problematic, Hitler hid a lot of build-up to WWII as civilian production); or, 4) non-mobile cloaking?

I'm phoning the Romulan ambassador soon and would appreciate answers.